Solution Provider Evolves Through Acquistion

DynTek, formerly Tekinsight, banks on government market

Channel veteran Steve Ross knows the value of solutions. He also realizes those solutions are difficult to build, deploy and profit by without size and scope.

Now the CEO of DynTek, formerly TekInsight, Ross has completed the company's fourth merger in less than two years.

"We want to build one company that can provide a full breadth of technology and service," said Ross. "A year and a half ago we knew we needed a certain scale to compete for large contracts, and we felt we could do that through acquisitions."

DynTek was born when Ross combined TekInsight with DynCorp Management Resources, a Reston, Va., management process outsourcing provider with 200 employees and 12 clients in as many states. Irvine, Calif.-based DynTek is a $100 million full-service solution provider with 400 employees focusing on state and local government markets in 17 states.

Solution provider TekInsight realized it had to change its business model to leverage emerging market opportunities. In 1999, the company evolved from Tadeo Holdings, which included several e-commerce and software development subsidiaries, to a software engineering company specializing in Web-based diagnostics and e-commerce performance and analysis tools. The company also built enterprise distributed systems and portal sites.

TekInsight began moving into the government market through its purchase of Big Technologies, an Internet solution provider that developed transactional applications for state and local governments, and Data Systems Network, a solution provider to Fortune 1000 companies and state and local governments. Soon after, TekInsight established its e-Government Services Division, which specializes in application development, network services, enterprise management, help-desk and security services. The company also bought Exodus Communications' Louisiana-based professional services division last October.

Although TekInsight had its technical offerings in place, the company realized it was missing opportunities because it didn't have the capabilities to develop and deploy business processes.

For example, TekInsight provided Web-enabled processes and applications, as well as network support, to Louisiana's Department of Social Services. But company executives noticed there was a need within the departments, particularly human resources, for outsourced management services. On the other hand, DynCorp executives were often asked by clients to provide technical services they couldn't handle.

"It's a wonderful complement. Not only can we address technology needs, but also business process needs," Ross said. "The bulk of state spending is usually in human resources, an area we haven't been able to address. We had to acquire that expertise."

The expertise is valuable for the provider and the customer. In May, DynCorp won a non-emergency transportation contract for the state of Virginia, valued at about $58 million over two years, including three one-year options for a combined $120 million. A similar contract, which includes network and system management solutions for greater efficiencies, will save the state of Connecticut $3 million a year, Ross said. Under the old structure, a similar type of deal would have been hard to win without the size and contacts that DynCorp brought to TekInsight, he said.

"We should see a lot of opportunities to take advantage of long-term customer relationships and to introduce new technologies," Ross said.

TekInsight, before the name change, closed its first quarter ended Sept. 30 with revenue of $11.6 million, up from $8.1 million in the same quarter last year, and gross profit of $2.4 million, up from $1.9 million in the year-ago quarter.

Several months ago, DynTek established a security service consisting of methodology for evaluating networks and identifying areas vulnerable to electronic and physical threats.

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